Money Laundering: U.S. Efforts To Fight It Are Threatened By Currency
Smuggling
(Chapter Report, 03/09/94, GAO/GGD-94-73)
U.S. banking and tax laws require the filing of reports on currency
transactions exceeding $10,000. People disguising illicit income are
sidestepping U.S. reporting rules by smuggling cash out of the
country--apparently with relative ease. Once the funds are deposited in
a foreign financial institution, they are much harder to trace and can
be spent or transferred back to the United States with less risk of
exposure. Treasury Department and U.S. Customs Service officials have
no way to estimate the amount of currency being smuggled, although law
enforcement officials GAO spoke with believe that the amount is
substantial--potentially billions of dollars each year. In addition to
discussing the extent of currency smuggling, this report describes the
techniques used to smuggle currency and U.S. efforts to curtail it.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-94-73
TITLE: Money Laundering: U.S. Efforts To Fight It Are Threatened
By Currency Smuggling
DATE: 03/09/94
SUBJECT: Money laundering
Smuggling
Customs administration
Reporting requirements
Financial disclosure reporting
Currency and coinage
Crimes or offenses
Drug trafficking
Search and seizure
Law enforcement agencies
IDENTIFIER: Treasury Currency Transaction Report
Customs Service Operation Buckstop
Treasury Financial Crimes Enforcement Network
Canada
Mexico
Colombia
Panama
Customs Service Operation Million Air
Customs Service Operation Pistachio
Customs Service Operation Backdoor
Customs Service Operation Cyclops II
Customs Service Operation Outlook
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Cover
================================================================ COVER
Report to the Chairman, Permanent Subcommittee on Investigations,
Committee on Governmental Affairs
U.S. Senate
March 1994
MONEY LAUNDERING - U.S. EFFORTS
TO FIGHT IT ARE THREATENED BY
CURRENCY SMUGGLING
GAO/GGD-94-73
Currency Smuggling
Abbreviations
=============================================================== ABBREV
BSA - Bank Secrecy Act
CMIR - Report of International Transportation of Currency or
Monetary Instruments
CTR - Currency Transaction Report
FinCEN - Financial Crimes Enforcement Network
IRS - Internal Revenue Service
Letter
=============================================================== LETTER
B-256098
March 9, 1994
The Honorable Sam Nunn
Chairman, Permanent Subcommittee
on Investigations
Committee on Governmental Affairs
United States Senate
Dear Mr. Chairman:
This report was prepared in response to your request to assess the
extent to which currency and monetary instruments are being smuggled
out of the United States in order to avoid reporting requirements.
The report identifies what efforts are being taken to prevent the
smuggling and discusses how efforts to combat money laundering are
affected.
As arranged with the Subcommittee, unless you announce its contents
earlier, we plan no further distribution of this report until 30 days
from its issue date. At that time, we will send it to other
congressional committees, various bureaus and offices within the
Department of the Treasury, and other interested parties. Copies
will be made available to others upon request.
The major contributors to this report are listed in appendix III.
Please contact me on (202) 512-8777 if you or your staff have any
questions concerning this report.
Sincerely yours,
Laurie E. Ekstrand
Associate Director, Administration
of Justice Issues
EXECUTIVE SUMMARY
============================================================ Chapter 0
PURPOSE
---------------------------------------------------------- Chapter 0:1
A major weapon in this country's efforts to combat money laundering
are banking and tax laws that require the reporting of large cash
transactions. To avoid these requirements, currency and other
negotiable instruments are being smuggled out of the country. The
Permanent Subcommittee on Investigations, Senate Committee on
Governmental Affairs, asked GAO to assess the extent of currency
smuggling and determine what the Customs Service is doing to curtail
it.
BACKGROUND
---------------------------------------------------------- Chapter 0:2
Money laundering is the process of disguising illicit income to make
it appear legitimate. In 1970 Congress enacted the Bank Secrecy Act
as a major step in fighting money laundering. The act's implementing
regulations require that several types of reports be filed, such as
the Currency Transaction Report, which banks and other financial
institutions are to file on currency transactions exceeding $10,000.
Another report is required from anyone transporting more than $10,000
in currency or monetary instruments into or out of the country. In
1984, the Internal Revenue Code was revised to require an additional
report. Persons engaged in a trade or business who receive more than
$10,000 in cash payments in a single transaction or series of related
transactions must file a report with the Internal Revenue Service.
Requirements to report large cash transactions have made it
increasingly difficult to disguise and conceal the huge amounts of
cash that criminal activity such as drug trafficking can generate.
According to law enforcement officials, one increasingly popular
method of circumventing the reporting requirements is to smuggle the
currency out of the country. Once the funds are deposited in a
foreign financial institution, they are much more difficult to trace
and can be spent or transferred back to the United States with less
risk of exposure.
RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3
Treasury and Customs officials said that the amount of currency being
smuggled out of the country cannot be determined. Moreover, because
of the clandestine nature of smuggling, a sound basis for estimates
is difficult to establish. While estimates vary, law enforcement
officials GAO interviewed agreed the amount is substantial and could
be billions of dollars a year.
Smugglers use a variety of techniques and conveyances. For example,
bulk shipments are sometimes driven across the border or hidden in
air or ocean cargo shipments. Individuals have been stopped
attempting to board aircraft with several hundred thousand dollars in
cash hidden on their bodies. Some have even swallowed rolls of bills
wrapped in condoms. The U.S. mail is also being used to ship
currency out of the country without reports being filed.
Smuggling currency out of the country is relatively easy. The nation
has thousands of miles of unguarded borders; where ports do exist,
the inspection of outbound cargo and passengers is not given the same
emphasis as inbound inspection. Although comparative data are not
available, the Customs Service acknowledges that most of its
resources are devoted to inspecting passengers and cargo entering the
country. Nonetheless, in the 4-year period ending September 30,
1992, the Customs Service interdicted and seized $171 million in
currency and negotiable instruments that was being taken out of the
country without being reported.
The level of effort given outbound inspections is generally
determined at the local level, and resource allocations are
constrained by the necessity of maintaining an adequate level of
inbound interdiction efforts. However, Customs has recently
increased the Service-wide oversight of and emphasis on its efforts
to interdict unreported currency leaving the country.
GAO'S ANALYSIS
---------------------------------------------------------- Chapter 0:4
CURRENCY SMUGGLING
CIRCUMVENTS REPORTING
REQUIREMENTS
-------------------------------------------------------- Chapter 0:4.1
Faced with the difficulties of laundering money domestically, many
individuals take currency and other negotiable instruments to other
countries, where it can be put into the flow of commerce and returned
to this country under an air of legitimacy. The extent of the
outbound currency problem is unknown, although some estimates are
available. The 1984 President's Commission on Organized Crime
estimated that as much as $5 billion a year in currency generated by
the illegal drug trade was being taken out of the country. More
recently, an Arizona law enforcement official has estimated that as
much as $3 billion is being smuggled into Mexico or elsewhere every
year just through that state's border. Although these are not
analytically based estimates, they are experts' assessments of the
magnitude of the problem. (See pp. 16 and 17.)
Foreign and U.S. currencies are brought into and taken out of the
country on a routine basis and for legitimate reasons. In fiscal
year 1992 businesses and individuals filed over 32,000 reports with
Customs of almost $30 billion in currency and negotiable instruments
leaving the country. These reports can be used to trace the funds.
Consequently, currency is being smuggled out of the country to avoid
any record that would associate individuals or businesses with large
amounts of funds. (See pp. 15 and 16.)
A number of methods are being employed to smuggle currency out of the
country. Law enforcement officials GAO interviewed described them as
ranging from simple to complex. The variety of concealment
techniques makes smuggling extremely difficult to detect. For
example, currency has been found hidden on passengers and in luggage,
commercial cargo, false compartments, vehicles, vessels, mail, and
commercial aircraft. As with drugs, there have even been instances
where individuals have swallowed currency or taped it to various
parts of their bodies. (See pp. 17 through 28.)
Individuals caught smuggling currency represent many nationalities
and are stopped en route to a number of destinations. Consequently,
no typical profile or country of destination exists. (See pp. 36
and 37.)
CUSTOMS HAS HAD SOME SUCCESS
IN COMBATTING CURRENCY
SMUGGLING
-------------------------------------------------------- Chapter 0:4.2
The Customs Service has traditionally emphasized those programs
directed at inspecting the flow of persons and cargo into the
country. Enforcement efforts to interdict illegal exports do exist,
however, and include one program, "Operation Buckstop," specifically
aimed at selectively inspecting passengers and cargo leaving the
country to ensure that currency being transported outside the United
States is reported. (See pp. 29 and 30.)
Customs does not collect data on a nationwide basis that can be used
to compare the resources used on inbound and outbound inspections.
Outbound inspections, however, are the exception rather than the
rule. Only 85 of the 338 Customs ports have staff performing
outbound inspections on a full-time basis. These staff total 130 of
the 6,228 inspectors in Customs. (See p. 29.)
GAO visited 28 ports in 11 Customs districts and found a wide
variation in how and when Operation Buckstop inspections were done.
Resource constraints were a major factor in making these decisions.
Other considerations included the perceived threat of currency
smuggling at particular ports, the adequacy of facilities to
accommodate outbound inspections, and the availability of specialized
equipment for examining bulk cargo. (See pp. 29 through 32.)
Customs efforts to combat currency smuggling have resulted in
substantial amounts of currency being interdicted. However, Customs
officials acknowledged that the seizures represent only a fraction of
the amount that is probably taken out of the country unreported. In
the 4-year period ending on September 30, 1992, $171 million was
seized by Customs inspectors as it was being smuggled out of the
country. (See p. 34.) Fifty-two of Customs' 338 ports reported 862
seizures totalling $42.4 million in fiscal year 1992. (See app.
II.) Most of the currency seized (71 percent) was being smuggled on
commercial aircraft, while 17 percent of the seized currency was
found on commercial ocean vessels. (See p. 38.) Eighty-six percent
of the currency was seized at 10 ports, and more than a third was
seized at 1 port, New York's JFK airport.
In the first 11 months of fiscal year 1993 seizures had increased to
913 for a total of $39.2 million. (See pp. 44 and 45.) Increases
over the number of seizures in fiscal year 1992 could be related to
an increase in smuggling activity, an increase in Customs outbound
inspection activity, or both.
CUSTOMS EFFORTS TO IMPROVE
AND INCREASE OUTBOUND
CURRENCY INSPECTIONS
-------------------------------------------------------- Chapter 0:4.3
Customs has increased the oversight and emphasis given currency
interdiction efforts on a nationwide basis. These efforts include
the preparation of an Inspector's handbook to ensure uniform
procedures during Operation Buckstop inspections and special
initiatives, such as testing the use of specially trained dogs to
detect U.S. currency. In addition, certain geographical areas and
means of conveyance have been targeted for special attention. (See
pp. 43 through 45.)
The primary factor limiting any increase in Operation Buckstop
initiatives is scarce resources. Any personnel, equipment, and funds
directed to outbound interdiction efforts are generally at the
expense of those Customs programs directed at inbound interdiction.
Because its overall level of resources is not increasing, the Customs
Service is faced with the challenge of determining the appropriate
balance between inbound and outbound interdiction efforts. (See pp.
44 and 45.)
RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:5
GAO is not making any recommendations in this report.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6
Customs officials provided GAO with oral comments on a draft of this
report. (See p. 45.) They said the report was factually correct and
an objective presentation of the problems faced by Customs in
combatting currency smuggling.
INTRODUCTION
============================================================ Chapter 1
Money laundering is the disguising or concealing of illicit income in
order to make it appear legitimate. Recognizing that money leaves a
trail that can be traced to an underlying crime, Congress has enacted
legislation to make money laundering more difficult to conceal and
easier to prosecute. These efforts have been rewarded in that
laundering money through U.S. financial institutions and businesses
is now considered to pose an increased threat to those seeking to
disguise illicit cash.
Law enforcement officials believe that successes in combatting money
laundering have caused criminals to avoid stringent U.S. reporting
requirements by smuggling the cash out of the country. Once across
the border the money is much more difficult to trace and can be more
easily hidden under the guise of normal business transactions. This
report describes the known extent to which currency and other
monetary instruments are being smuggled out of the country, the
methods used, and what Customs Service efforts are under way to
interdict these funds.
CRIMINALS FACE PROBLEMS IN
DEALING IN LARGE AMOUNTS OF
CASH
---------------------------------------------------------- Chapter 1:1
Criminal enterprises such as drug trafficking generate enormous
amounts of cash. It is estimated that the sale of illegal drugs in
this country could be as much as $100 billion each year. Although
the preferred medium of exchange is cash, the transactions often are
small and drug traffickers must contend with a large volume of
small-denomination bills.
Although the process of money laundering has been broken down into a
number of steps, it is generally agreed by law enforcement and
regulatory officials that the point at which criminals are most
vulnerable to detection is "placement." Placement is the concealing
of illicit proceeds by
converting the cash to another medium that is more convenient or
less suspicious for purposes of exchange, such as property,
cashier's checks, or money orders; or
depositing the funds into a financial institution account for
subsequent disbursement.
Because of the problems associated with converting and concealing
large amounts of cash--about 450 paper bills weigh 1 pound, so that
$1 billion in $100 bills would weigh over 11 tons--placement is
perhaps the most difficult part of money laundering and is currently
the primary focus of U.S. law enforcement, legislative, and
regulatory efforts to attack money laundering.
REPORTING REQUIREMENTS HAVE
INCREASED THE RISKS OF
LAUNDERING MONEY
---------------------------------------------------------- Chapter 1:2
Federal efforts to detect placement and track the international
movement of money and monetary instruments across the nation's
borders were significantly enhanced with the passage of the Bank
Secrecy Act (BSA) in 1970. The act requires individuals as well as
banks and other financial institutions to report large foreign and
domestic financial transactions to the Department of the Treasury.
The implementing regulations of the act require the following
reports:
Currency Transaction Report (IRS Form 4789): this report must be
filed by financial institutions\1 for each deposit, withdrawal,
exchange of currency, or other payment or transfer, by, through,
or to such financial institutions that involves a transaction in
currency of more than $10,000.
Currency Transaction Report by Casino (IRS Form 8362): this report
must be filed for each currency transaction in excess of $10,000
by any licensed casino operating in the United States with gross
annual gaming revenues in excess of $1 million.
Report of International Transportation of Currency or Monetary
Instruments (Customs Form 4790): this report must be filed when
currency or monetary instruments over $10,000 are transported
from or into the United States.
Report of Foreign Bank and Financial Accounts (Treasury Form TDF
90-22.1): this report must be filed annually by U.S. persons
who have a financial interest in or signature authority over
bank accounts, securities accounts, or other financial accounts
in a foreign country that have a combined value in excess of
$10,000.
The act has been amended to provide substantial criminal and civil
penalties for institutions that fail to file the required reports and
for individuals who deliberately evade certain reporting
requirements.
In addition to the BSA reports, Section 6050I was added to the
Internal Revenue Code in 1984 requiring any person engaged in a trade
or business (other than financial institutions required to report
under the Bank Secrecy Act) who receives more than $10,000 in cash
payments in a single transaction or series of related transactions to
file a report with the Internal Revenue Service (IRS). The Secretary
of the Treasury requires the report be filed on an IRS Form 8300,
Report of Cash Payments Over $10,000 Received in a Trade or Business.
Data from the BSA reports and the Forms 8300 are maintained on two
computer databases. One is used by IRS in investigations involving
tax fraud and evasion. The other is used by law enforcement agencies
at the state and federal level in criminal investigations, not only
of money laundering, but also in
identifying suspicious transactions that might indicate other
possible criminal activity;
evaluating the merits of any potential criminal cases; and
tracing, analyzing, or identifying the disposition of proceeds from
any illegal activity.
By far, the report most frequently filed has been the Currency
Transaction Report (CTR). In May 1993, we testified before the House
Banking Committee\2 that over 95 percent of the BSA reports filed up
to that time were CTRs and that since 1987 the annual filings of CTRs
had increased at an average rate of 12.7 percent. We also pointed
out that Treasury and law enforcement officials generally believe
that in the past, traditional banks and other financial institutions
were the primary means used by money launderers. The officials also
believe that increased efforts by federal regulatory and law
enforcement agencies, as well as enhanced cooperation by the banks
themselves, have significantly improved bank compliance with the
reporting requirements, making it much more difficult for banks to be
used for money laundering purposes.
Given the increased level of risk, criminals must now pursue money
laundering methods less susceptible to detection. One such method is
to take the cash out of the country, after which it is not subject to
U.S. reporting requirements and can be reintroduced into the
financial system with the appearance of legitimacy.
--------------------
\1 As defined by Treasury, "financial institutions" include banks,
federally regulated security brokers, currency exchange houses, funds
transmitters, check cashing businesses, and persons subject to
supervision by state or federal bank supervisory authority.
\2 Money Laundering: The Use of Bank Secrecy Act Reports by Law
Enforcement Could Be Increased (GA0/T-GGD-93-31, May 26, 1993).
OBJECTIVES, SCOPE, AND
METHODOLOGY
---------------------------------------------------------- Chapter 1:3
The Chairman of the Permanent Subcommittee on Investigations, Senate
Governmental Affairs Committee, asked us to assess the extent to
which currency is being smuggled out of the U.S. and identify what
efforts the Customs Service is taking to prevent the smuggling.
Rather than attempt to provide a quantified estimate of how much
smuggling is occuring, it was agreed that we would present the
estimates of knowlegeable law enforcement officials.
To address these objectives, we reviewed pertinent laws and
regulations and an extensive body of published material, including
congressional hearings and reports; academic and periodical
literature; and reports prepared by federal and state agencies,
private research associations, and other experts. We also met with
knowledgeable officials and reviewed records within the Customs
Service and the Financial Crimes Enforcement Network (FinCEN).
To review ongoing interdiction efforts by Customs we obtained Service
records and held discussions with knowledgeable Customs officials at
the headquarters, district, and port levels. To the extent possible,
we verified the statistical information we obtained through a review
of the source records and observations.
We also visited Customs ports and district offices that were
judgmentally selected based on the locations having a high degree of
outbound interdiction activity. Overall, the Customs districts we
visited were responsible for 87.4 percent of all the outbound
currency seizures during fiscal year 1992. We ensured that our
visits included land border crossings with both Canada and Mexico,
seaports on both the Atlantic and Pacific coasts, and major airports
throughout the country. To provide a basis for comparison, we
visited some smaller ports as well as ports that had no outbound
currency seizures.
As shown in appendix I, we visited 11 districts and 28 ports. Since
the sites were selected judgmentally as described above, the results
of our work cannot be projected nationwide. At each of the ports
visited, we met with Customs officials and observed inspection
activities. Where available, we analyzed documentation on outbound
currency inspections and seizures. We attempted to identify all the
currency smuggling schemes that Customs had detected and to determine
the rationale for local differences in interdiction efforts.
To determine the status of efforts to combat outbound currency
through the U.S. mail, we met with officials in both the Customs
Service and the Postal Service in Washington, D.C. We reviewed the
current status of proposed interagency agreements and discussed the
status of current inspection efforts.
We provided the Customs Service with a draft of this report and
received oral comments from agency officials.
We did our work between February 1992 and November 1993 and in
accordance with generally accepted governmental auditing standards.
CURRENCY SMUGGLING IS BEING USED
TO EVADE REPORTING REQUIREMENTS
============================================================ Chapter 2
Transporting large amounts of foreign and domestic currency into or
out of the U.S. is legal and a relatively common occurrence.
However, Treasury regulations require that the destination, method of
transport, and owner of the funds be identified. Individuals
attempting to remove large amounts of illicit cash out of the country
prefer to remain anonymous and that the shipment be unrecorded.
Consequently, they often resort to smuggling.
The exact amount of money being smuggled out of the country is
unknown. Because of our open borders and the priority given inbound
interdiction efforts, billions of dollars in U.S. currency could be
leaving the country each year unreported.
REPORTING REQUIREMENTS FOR
TRANSPORTING CURRENCY INTO OR
OUT OF THE COUNTRY
---------------------------------------------------------- Chapter 2:1
Businesses and individuals transport currency into or out of the
country for a number of legitimate reasons. For example, financial
institutions and exchange houses operating on the border may need to
take currency back into the country. Also, businesses and
individuals may find they can negotiate better deals in foreign
markets by having currency on hand.
As discussed earlier (see ch. 1), any individual or business that
transports more than $10,000 in currency or monetary instruments\3
into or out of the country must file a Report of International
Transportation of Currency or Monetary Instruments (CMIR) or face a
fine or imprisonment. Generally, this filing is made at the Customs
port where the funds cross the border although some CMIRs can be
mailed to Customs headquarters in Washington, D.C. The information
to be reported on the CMIR includes
the name and other identifying information of the individual
transporting the funds,
the method being used to transport the funds,
the amount being transported,
the owner of the funds, and
the destination of the funds.
In fiscal year 1992, more than 200,000 CMIRs were filed to report
about $61 billion in currency entering or leaving the country. The
amounts being transported can be quite large. In fiscal year 1992,
43 percent of the outbound CMIRs filed by businesses and 6.5 percent
of the outbound CMIRs filed by individuals were for amounts of at
least $100,000. The largest outbound business CMIR was for
$72,852,579, while the largest outbound individual filing was for
$23,800,000. Overall, the average business CMIR was for $1,124,111,
while the average individual CMIR was for $61,680. Table 2.1
provides a breakdown of the CMIRs filed by amounts reported, type of
filer, and whether the funds were entering or leaving the country.
Table 2.1
Distribution of CMIRs Filed in Fiscal
Year 1992
Amount Amount
(billion (billion
Direction Number s) Number s)
-------------------- -------- -------- -------- --------
Inbound 124,786 $6.836 50,537 $24.057
Outbound 6,348 $0.389 26,123 $29.365
------------------------------------------------------------
Source: U.S. Customs Service.
Customs officials told us that there is no reason to assume that the
number of CMIRs being filed should be relatively equal for inbound
and outbound traffic and, as table 2.1 shows, they are not. Since we
do not know how many outbound CMIRs should have been filed, we cannot
draw any conclusions about compliance with the reporting requirements
from the disparity between inbound and outbound filings.
--------------------
\3 As defined by Treasury regulations, "monetary instruments" include
forms of payment that are bearer negotiable, such as traveler's
checks and money orders. For clarification purposes, the word
"currency" as used in this report will also refer to monetary
instruments.
THE AMOUNT OF CURRENCY BEING
SMUGGLED OUT OF THE COUNTRY IS
UNKNOWN
---------------------------------------------------------- Chapter 2:2
Despite the fact that U.S. currency is routinely taken out of the
country for legitimate purposes, Customs officials said that
criminals are anxious to avoid the paper trail created by filing a
CMIR. Thus, they resort to currency smuggling by carrying money out
of the country in some surreptitious or concealed manner.
Treasury and Customs officials told us that it is not possible to
measure accurately how much currency is being smuggled out of the
country. Moreover, because of the inherent clandestine nature of the
activity, it is very difficult to establish a sound basis for
estimates. These officials believe, however, that the millions of
dollars in currency being interdicted (see ch. 3) represent only a
small fraction of the total amount being smuggled.
Currency smuggling has been recognized as a problem since at least
1984, when the President's Commission on Organized Crime reported
that as much as $15 billion of the $50 to $75 billion in illegal drug
money then being earned in the United States moved into international
financial channels each year. Of the $15 billion, as much as $5
billion was thought to be transported in the form of currency, with
the remainder being wired abroad after deposit in the U.S. banking
system.
A 1987 Customs Service report on money laundering methods reported
that the currency flow between two countries, Colombia and Panama,
and the United States indicated that approximately $1 billion a year
in U.S. currency was being returned to this country, but a
corresponding flow of U.S. currency was not being reported as sent
to those countries.
Treasury's Financial Crimes Enforcement Network (FinCEN) reported in
July 1992 that currency smuggling was extensive and appeared to be
increasing. Nonetheless, the report concluded that "The extent of
currency smuggling is subject to a great deal of conjecture."
In February 1992 hearings before the Permanent Subcommittee on
Investigations, Senate Committee on Governmental Affairs, federal as
well as state law enforcement officials expressed their concerns with
the emerging trend of currency being smuggled into Mexico. An
Arizona Assistant Attorney General testified that law enforcement
personnel were aware of the export of cash drug proceeds and
estimated that as much as $3 billion in U.S. currency a year was
being smuggled out of the country from Arizona into Mexico or
elsewhere. A Deputy Attorney General for California testified that
individuals had been caught walking across the California border into
Mexico with shopping bags containing as much as $500,000 in currency.
However, as discussed below, Mexico is not the only destination of
U.S. currency being smuggled out of the country.
CURRENCY SMUGGLING METHODS VARY
CONSIDERABLY
---------------------------------------------------------- Chapter 2:3
Smuggling currency out of this country is relatively simple because
of the nation's border characteristics and because of our historic
treatment of exports and outbound passengers. Geographically, the
contiguous United States has approximately 11,323 miles on two oceans
and the gulf coast, 3,987 miles of shared border with Canada, and
1,933 miles of shared border with Mexico. While Customs maintains
over 300 ports where vehicles and cargo can leave the country by air,
land, or sea, there is little to prevent a person leaving the country
by simply crossing the border at other locations.
Smugglers use a variety of techniques to take money out of the
country. The remainder of this chapter presents some examples of
methods used by currency smugglers, sorted by type of conveyance
used.
AIR
-------------------------------------------------------- Chapter 2:3.1
Customs officials believe that smuggling currency by commercial
airlines has long been a preferred method, since (1) the passenger
can stay close to his money during the transport, (2) so many
destinations can be reached easily and quickly, and (3) so little
preplanning is required. Passengers on commercial air carriers can
smuggle currency concealed on their persons, in hand-carried baggage,
or in the checked luggage compartments of the aircraft. Commercial
flights can be direct routes to foreign destinations or may connect
with other domestic flights prior to overseas departure. Customs
provided us with several examples of how currency is smuggled out of
the country on commercial airlines.
In March 1988 Customs seized $402,334 from a passenger departing from
Los Angeles International Airport en route to Colombia. While
performing a search for outbound currency violations, an inspector
found a duffel bag with two 5-quart cooker/fryers packed in boxes.
The unusual weight of the boxes caused the inspector to examine their
contents, whereupon he noticed that the screws holding the bottoms of
the appliances had been tampered with. Upon removing the screws, the
inspector found bundles of U.S. currency stuffed into the bottoms of
the appliances.
In November 1988 Customs seized $1,017,832 being transported in
checked baggage from Miami to Colombia. The currency consisted
primarily of $20 bills stacked in groups of 100 and bound by rubber
bands. The currency was packed among the wiring in electric space
heaters and in suitcases. A follow-up investigation resulted in the
seizure of an additional $2,400,000 from a garage at the residence of
one of the violators identified in the investigation. This currency
was wrapped in foil and concealed in microwave ovens and heaters
awaiting shipment.
In January 1991 a Chicago O'Hare security guard at the X-ray security
point observed a large amount of currency hidden in a false-bottom
briefcase. The guard notified Customs officials, who responded by
performing a search of passengers boarding the flight to Paris, which
had a connection to Hong Kong. The CMIR requirement was announced
over the intercom prior to passengers boarding the flight. The
suspected violator approached an inspector and declared $9,650. He
was told that he had to declare currency only if it exceeded $10,000.
While boarding the aircraft, the suspect was stopped in the jetway
and advised again of the currency requirement. He orally declared
$100,000 but then completed a CMIR for $105,000. He again was
afforded an opportunity to amend his declaration and did so for
$170,000. Customs' inspection disclosed the suspect was carrying
$184,200, which was then seized.
In September 1992 federal and state authorities performed an outbound
currency search of a commercial carrier's crew members departing from
New York-JFK with final destination to Colombia. A flight attendant
was stopped and informed of the currency reporting requirement. She
declared a total of $1,000. Upon examination of her hand-carried
crew bag, a Customs inspector found $2,600 in a roll of toilet paper,
$12,400 in an envelope, $20,000 in a wooden box, $1,627 in her
wallet, $5,000 in a carry-on garment bag, $40,000 in a box of laundry
detergent, and $13,300 in her jacket pocket. In total, she was
carrying $95,541. The money was seized and the flight attendant was
arrested.
Currency smugglers have become more sophisticated in their
concealment methods as Customs has targeted international flights for
outbound searches. One such technique is concealment on or within
the body itself. Figure 2.1, for example, shows an individual who
had strapped money to his waist and another individual with money
taped to his lower body. Customs documented one case at New York-JFK
where a woman had swallowed $7,500 in 15 condoms, hidden $3,500 in 7
condoms in a body cavity, and concealed $47,894 in her baggage.
Figure 2.2 shows examples of money being extracted from a lotion
bottle and currency secreted in a false-bottom briefcase.
Figure 2.1: Examples of
Individuals Attempting to
Smuggle Currency by Concealment
on the Body
(See figure in printed
edition.)
Source: U.S. Customs Service.
(See figure in printed
edition.)
Figure 2.2: Examples of
Attempts to Smuggle Currency in
Personal Baggage
(See figure in printed
edition.)
Source: U.S. Customs Service.
(See figure in printed
edition.)
Currency smuggling by air is not limited to passengers but also may
include air cargo. In the largest such detected case, inspectors at
New York-JFK found $6,469,024 in 26 sealed metal containers. In
another case, inspectors found $1,752,106 in cash and money orders in
a water heater. Figure 2.3 is a Customs diagram of how this money
was concealed. In still another case, airline employees accidentally
pierced the support railing on a pallet containing empty fruit boxes,
eventually leading to the discovery of $989,915 hidden in
hollowed-out portions of the wood.
Figure 2.3: Diagram of
Hot-Water Heater Used to
Conceal $1,752,106 in Currency
(See figure in printed
edition.)
Source: U.S. Customs Service.
(See figure in printed
edition.)
LAND
-------------------------------------------------------- Chapter 2:3.2
Smuggling currency across land border crossings lacks some of the
advantages of using air carriers. First, there are only two
countries--Mexico and Canada--that border the United States. If the
actual currency is bound for some other country, it still has to be
converted or shipped again from the intermediate stop. Also, the
smuggler must physically go to the border rather than simply board an
international flight.
At the same time, border crossings offer advantages for smugglers.
Customs presence tends to be less at the outbound stations, and
inspections are infrequent because they create massive traffic jams.
Even if outbound searches are being performed, the individual still
can wait until the last minute to turn around, seek another crossing,
or prepare a CMIR. If the smuggler wishes to exit at an official
crossing, Customs maintains 98 ports on the Canadian border and 36 on
the Mexican border. Also, the smuggler can easily carry the currency
across the border at some point where it is not patrolled.
Another advantage of land border crossings is that the smuggler often
has a vehicle in which to conceal currency. Customs agents have
found currency in obvious locations, such as on the seat and in the
trunk, as well as in concealed locations, such as false compartments,
dashboards, and door panels. Customs officials said that unless they
have some evidence that these unusual concealment methods are being
used, they are not likely to perform the detailed searches necessary
to disclose the hidden funds during routine inspections.
Figure 2.4 shows some of the problems associated with preventing
currency smuggling at land border crossings. In many locations on
the Canadian border there is no Customs presence at all, and
individuals and vehicles can cross the border at will. For example,
one picture shows a crossing on an isolated country road in Vermont
while another shows a crossing on a residential street in a Vermont
town. Another picture shows the unpatrolled nature of the border in
a Washington town, where an individual can enter Canada simply by
walking across a park.
Figure 2.4: Typical
Unpatrolled Crossing Points on
the U.S.-Canadian Border
(See figure in printed
edition.)
Even where Customs does have a checkpoint, the emphasis is generally
on inbound traffic. Figure 2.5 graphically illustrates the
differences in control of inbound and outbound traffic on the Mexican
border. In this typical crossing at San Ysidro, California, there is
a considerable backup on the Mexican side, while cars and pedestrians
from the United States cross into Mexico unimpeded.
Figure 2.5: U.S.-Mexican
Border Crossing at Otay Mesa,
California (Inbound on Left,
Outbound on Right)
(See figure in printed
edition.)
In another example of currency being smuggled across a land border,
Customs stopped an individual crossing into Mexico as a pedestrian at
Otay Mesa, California. When asked if he had currency to declare and
informed of the CMIR requirement, the individual told the Customs
agents he was carrying $9,000. A search of the individual disclosed
$14,010 in a portfolio, $2,126 in his pants pockets, and $200 in his
wallet. After he refused once more to complete a CMIR, Customs
seized the currency--except for $200 he was allowed to keep in order
to continue on to his stated destination--and allowed the individual
to leave the country. A follow-up investigation revealed that this
individual had submitted CMIRs during previous crossings, proving
that he was aware of the reporting requirement.
In another case, four individuals were crossing the border at
Hidalgo, Texas, in a van. Asked by Customs if they had currency to
declare, they responded that they did not. After a search located
two suspicious envelopes, they again were asked and again responded
that they had nothing to declare. A search of the envelopes led to
the seizure of $18,657 and the arrest of two of the occupants.
In November 1990, Customs inspectors and Border Patrol agents located
in Holland, Vermont, seized $1,289,700 destined for Canada. The
violators were arrested for attempting to transport unreported
currency out of the United States using heavy-duty all-terrain
vehicles on a back road.
SEA
-------------------------------------------------------- Chapter 2:3.3
Smuggling money by commercial shipping is even more cumbersome than
by land, since (1) it may require the use of other parties such as
exporters or ship personnel and (2) the smuggler may be physically
separated from the currency for long periods. At the same time,
however, shipping offers certain advantages for smuggling. Ships
leave U.S. harbors bound for countries around the world, and ship
cargo typically involves such large containers that currency is very
easy to conceal and difficult to detect.
Customs recently has begun to target sea shipments for outbound
inspections, and several large dollar value seizures have been made.
In September 1989, for example, Customs inspectors in Newark seized
$763,240 that had been concealed beneath the floor of a refrigeration
unit in a ship bound for Colombia.
In July 1992, Customs inspectors at the Newark seaport seized
$7,175,161 from two 20-foot containers loaded with dried peas on
board a vessel destined for Colombia. The violator, a packing and
shipping company, had freshly painted each container in order to
conceal the false front walls. A subsequent investigation led to the
seizure of an additional $4,000,000 when a suspect was apprehended at
his residence, bringing the total seizure amount to over $11 million.
According to Customs, the violator said the seizure represented
approximately 1 month's drug profits.
In March 1992 the press reported that Panamanian authorities had
seized $7.1 million from two containers on a ship inbound from Miami.
The money had been scheduled for deposit in a Spanish bank in Panama.
The money launderer was believed to have been using a U.S. paper
company as a front for his operations.
A report prepared by Customs Office of Intelligence in January 1989
noted that smugglers were likely to continue their use of commercial
shipping due to the minimal risk involved.
MAIL
-------------------------------------------------------- Chapter 2:3.4
Federal law enforcement agencies agree that a significant amount of
currency is being sent out of the country through the U.S. mail and
commercial carriers without being reported. Officials at Customs,
the U.S. Postal Inspection Service, and FinCEN said that although
the extent of the problem could not be measured, the U.S. mail and
private mail couriers are being used to send currency (primarily
money orders) out of the country without the required CMIR being
filed. The volume of mail and packages leaving the country each
day--as well as the large amount of currency that a single package
can hold--makes this a relatively easy and safe means of smuggling
money out of the country.
An intelligence report issued by Customs in January of 1989 cited
several cases that lend credibility to the belief that smugglers use
mail and international air courier companies to smuggle currency
overseas. In March 1988, for example, Customs officials in Los
Angeles reported that they were working a joint investigation with
Newark, New Jersey, involving the shipment of cashier's checks for
amounts under $10,000 to Panama in which the smuggler used three
private delivery services and the U.S. Postal Service.
More recently, a Customs inspection at a private carrier's hub in
Memphis found large amounts of currency in packages supposedly
carrying business documents. One of the packages contained $30,000
in money orders, the second $30,000 in traveler's checks, and the
third $16,800 in money orders. Although the packages were sent by
two separate entities, all were bound for Colombia.
Similarly, the Postal Inspection Service has seized currency being
mailed to overseas locations during its own money laundering
investigations. Specific data on the number and dollar amount of
seizures made by the Inspection Service are unavailable, but the
Service estimates that as many as 25 separate criminal organizations
are involved in sending unreported currency and money orders out of
the country through 1 major airport on the East Coast alone.
CUSTOMS HAS HAD SOME SUCCESS IN
COMBATTING CURRENCY SMUGGLING
============================================================ Chapter 3
In order to collect revenues and interdict illegal imports, most
Customs resources are dedicated to inspecting passengers and cargo
entering the country. Even so, the Service does have a nationwide
effort under way to interdict illegal exports. Included in this
initiative is one program specifically aimed at the interdiction of
currency being smuggled out of the country.
In the 4-year period ending in September 1992 Customs seized over
$170 million in unreported currency. Although this is a substantial
amount, Customs officials acknowledge that it is small in comparison
to the amount that is probably leaving the country undetected.
Recent Customs initiatives have increased the direction and emphasis
given to efforts to curb currency smuggling. Given a limited pool of
resources, however, any increase in outbound inspection programs is
generally at the expense of Customs' inbound interdiction efforts.
OUTBOUND INSPECTIONS FOR
UNREPORTED CURRENCY AND OTHER
ILLEGAL EXPORTS
---------------------------------------------------------- Chapter 3:1
The Customs Service has traditionally emphasized those programs
directed at inspecting the flow of persons and cargo into the
country. Relatively few resources have been devoted to outbound
inspections. Customs performs its outbound currency interdiction
program as a part of an overall outbound enforcement effort that
includes other contraband items, such as precursor chemicals for the
manufacture of illegal drugs, stolen vehicles, high-technology
equipment, guns and weapons, and any material being exported to
embargoed nations.
Customs does not collect data for measuring how much time and effort
are spent on outbound inspection efforts as opposed to inbound
inspections. Based on the following statistics, however, outbound
inspections appear to receive less emphasis than inbound inspections:
Only 85 of the more than 300 ports have dedicated outbound
enforcement teams. However, these 85 ports include many of the
major ports, including international airports.
Of the 6,228 Customs inspectors nationwide, only 130 have been
assigned to outbound inspections on a full-time basis as of
fiscal year 1993.
Although no records are available on the level of outbound
inspections, Customs officials said the rate was much lower than
for inbound traffic, where about 8 percent of cargo is subject
to inspection.
Of the various Customs programs targeting illegal exports, one
program--"Operation Buckstop"--is specifically intended to prevent
the unreported export of currency from the United States.
Historically, outbound inspections for the purpose of interdicting
currency were done at only a few locations and as special operations.
The locations chosen for the inspections were limited to suspected
routes of unreported currency destined for narcotic producing and
bank-haven countries. Operation Buckstop was initiated as a
nationwide special operation in February 1986, and between 1988 and
1991 it was expanded and incorporated with other national outbound
enforcement programs.
Today, Operation Buckstop is the generic term for all Customs Service
efforts to inspect outgoing passengers and cargo to interdict
currency being smuggled out of the country. In general, these
efforts mirror inbound inspections. Individuals and cargo shipments
are screened and some are chosen for more detailed examination based
on the judgment of the Customs inspector. Because of limited
resources and the emphasis on inbound inspections, however, outbound
inspections are the exception rather than the rule. Consequently,
Customs is very selective when targeting ports for implementing a
Buckstop operation.
According to Customs officials, there is no typical Operation
Buckstop inspection effort. Participation and specific operating
procedures are left to the discretion of individual Customs district
offices and ports. Some Operation Buckstop efforts are port
initiatives, while others are coordinated at the district level.
Some districts and ports have inspectors specifically dedicated to
Buckstop inspections on a full-time basis. Others have a cadre of
inspectors dedicated to outbound inspections, some of whom
participate in Buckstop efforts. Finally, some locations use
whatever inspectors are available at the time.
Districts and ports also vary in the number of inspectors involved
and the frequency with which they perform Buckstop inspections. For
example:
The San Diego district has a designated team of inspectors for
Buckstop operations that rotates among the seven ports within
the district. One day the team may be at the San Ysidro land
border crossing, the next at the international airport, and the
next at the seaport.
Some large airports, such as Los Angeles International (LAX) and
New York-JFK, have dedicated teams of Buckstop inspectors that
work selected flights but differ on the frequency of
inspections. Inspections at LAX are performed 8 hours a day,
while outbound inspections at New York's JFK are performed from
6 a.m. to midnight. Only a limited number of flights can be
targeted for inspections, based on the workload and the
availability of the dedicated inspectors.
In the St. Albans, Vermont, district, an outbound inspection that
includes Buckstop efforts is performed at land border crossings
for a 24-hour period once every 6 months. There are no
full-time outbound or Buckstop teams; rather, the inspectors
available at the time perform the inspections.
To augment these efforts, Customs headquarters and some of the ports
involved in Operation Buckstop have developed special initiatives
from time to time. For example, we identified the following during
our site visits:
Operation Million Air. This effort specifically targeted private
aircraft. In San Diego, it included Customs' Office of
Enforcement agents, personnel from Customs' Command
Communication Intelligence Unit, and special agents from the
Federal Aviation Administration. The first operation resulted
in five seizures, two of them involving a total of $223,786 in
currency.
Operation Pistachio. In this effort, Chicago O'Hare inspectors
specifically targeted weekend flights, because Operation
Buckstop normally is restricted to the regular work week.
Currency seizures totalling over $350,000 from previous
inspections prompted this initiative.
Operation Backdoor. The Nogales, Arizona, district targeted two
land border crossings and seized nearly $400,000 from motorists
over an 8-month period. This effort was similar to one known as
"Operation Pipeline" in Blaine, Washington.
Operation Cyclops II. This initiative resulted in the seizure of
over $1 million in negotiable monetary instruments passing
through Los Angeles International Airport. Five arrests were
also made.
As with all inbound or outbound inspections, Operation Buckstop
inspections are performed by port personnel working under the
authority of Customs' Office of Inspection and Control. If the
inspectors determine that an individual is in violation of the
reporting requirements during their examinations, the individual is
detained and the local Office of the U.S. Attorney is contacted to
determine the likelihood the case will be prosecuted and what action
to take. For various reasons--including an extensive caseload of
higher priority offenses--the U.S. Attorney may decline to
prosecute. In this event, Customs can still seize the currency and
seek civil forfeiture of the funds. If the amount in question is
less than $500,000, the forfeiture may be pursued administratively.
Resource constraints contribute significantly to determining when and
where Buckstop inspections are performed. At the ports visited, we
found that the staffing on outbound enforcement teams ranged from a
minimum of 3 to a maximum of 20 persons. To supplement their
staffing, some districts and ports obtain assistance from the
National Guard, state and local authorities, and special task force
operations. However, the extent to which these resources were used
varied, and no records were kept to determine the level of effort
expended.
Customs officials said the lack of resources was not merely a matter
of personnel. They noted that much of the traffic leaving the
country is bulk cargo, which is difficult to inspect without large
and sophisticated equipment. Customs has a shortage of such
equipment and the equipment it does have--like the personnel--tends
to be devoted to inbound inspections.
To illustrate the level of Buckstop inspections, we obtained
statistics from Chicago O'Hare, one of the country's busiest
international airports. As of September 1992, an average of 1,888
flights a month left O'Hare for foreign destinations. The number of
flights inspected each month averaged 64, from a low of 18 to a high
of 135. An average of 32.17 percent of the passengers on these
flights was interviewed or otherwise subjected to inspections. These
inspections resulted in 59 seizures of outbound currency totaling
$1,759,328.
Table 3.1
Operation Buckstop Inspections at
Chicago O'Hare Airport, Calendar Year
1992
Number Number of Number of
of Number of passengers checked
flights passengers interviewe bags
Month targeted departing d examined
-------------- -------- ---------- ---------- ----------
January 18 2,095 1,087 1,090
February 27 3,281 1,455 2,414
March 21 3,160 1,413 427
April 33 5,120 1,570 458
May 104 19,127 10,712 1,011
June 57 11,152 1,976 638
July 92 14,443 3,716 5,418
August 87 14,199 4,498 2,802
September 135 22,490 7,864 2,451
October 57 9,124 2,199 1,393
November 72 10,962 2,098 536
December 65 10,397 1,806 1,648
============================================================
Totals 768 125,550 40,394 20,286
------------------------------------------------------------
Source: U.S. Customs Service.
In June 1992 Customs dedicated 10 full-time inspector positions to
outbound inspections at O'Hare. While this has increased coverage,
the team typically works overlapping shifts through the regular work
week. These shifts result in coverage for 13-1/2 hours daily. At
the time of our visit, almost no inspections were made at other hours
during the day or on Sundays, except for special operations.
SEIZURES OF CURRENCY BEING
SMUGGLED OUT OF THE COUNTRY
---------------------------------------------------------- Chapter 3:2
In fiscal year 1989 Customs began to accumulate statistics for all
seizures of currency resulting from all outbound interdiction
efforts, including those seized as a result from Operation Buckstop
inspections. From fiscal year 1989 through fiscal year 1992, Customs
made 2,940 outbound currency seizures totaling $171.3 million.
Customs officials said that this figure represents only that amount
that can be attributed to the direct interdiction of currency being
smuggled out of the country. We were also told that on a number of
occasions currency has been seized during an investigation and it was
later determined that an attempt to smuggle it out of the country had
been planned. In these cases, however, the seized currency is not
counted as resulting from interdiction efforts.
Table 3.2 shows the number and dollar values of outbound seizures
since fiscal year 1989 compared to all currency seizures made by
Customs over the same period.
Table 3.2
Outbound and Total Currency Seizures,
Fiscal Years 1989 Through 1992
Percentage of
seized
currency
Amount All Amount attributable
Fiscal Outbound (millio seizures (millio to outbound
year seizures n) \a n) seizures
------ -------- ------- -------- ------- --------------
1989 595 $ 22.0 4,102 $ 225.0 9.78
1990 821 52.5 4,222 446.0 11.77
1991 662 54.4 3,600 272.2 19.99
1992 862 42.4 3,507 220.6 19.22
============================================================
Total 2,940 $171.3 15,431 $1,163. 14.72
8
------------------------------------------------------------
\a Includes all seizures of currency by Customs including seizures
resulting from inbound, outbound, and other enforcement programs
Source: GAO analysis of Customs data.
Due to the lengthy forfeiture process and the methods used to
maintain statistics, we were unable to determine the percentage of
the above seizures actually resulting in forfeitures to the
government. Customs officials said that many of the smaller seizures
are returned during the administrative adjudications after a fine has
been levied. However, most of the seizures exceeding $100,000 are
eventually forfeited. Figure 3.1 describes the number and value of
seizures of $100,000 or more made since 1989.
Figure 3.1: Number and Dollar
Amount of Outbound Seizures of
$100,000 or More
(See figure in printed
edition.)
A relatively small number of ports account for the bulk of currency
seizures. However, as shown in figure 3.2, 10 of these ports
accounted for about 85 percent of the $42.4 million seized during the
year. New York-JFK alone accounted for more than a third of the
seizures. (See app. II for a list of the 52 ports that reported
seizures in fiscal year 1992.)
Figure 3.2: 10 Ports Accounted
for Most of the Outbound
Currency Seizures in Fiscal
Year 1992
(See figure in printed
edition.)
Customs does not maintain overall statistics on the number of
outbound inspections made, so there is no readily available way to
determine the frequency with which violations are identified during a
Buckstop inspection. Customs officials at the ports we visited told
us that most outbound currency seizures result from labor-intensive
"cold hit" examinations rather than long-term investigative actions.
They also said that seizures come from individuals of varying
nationalities and headed for destinations around the world, which
makes it even more difficult to profile any particular suspects or
target specific flights. Table 3.3 summarizes Customs' outbound
currency seizures as determined by the violators' nationalities for
fiscal years 1991 and 1992.
Table 3.3
Outbound Currency Seizures by Violator
Nationality, Fiscal Years 1991 and 1992
Number Number
of Dollar of Dollar
Violator seizures amount seizures amount
nationality FY 1991 FY 1991 FY 1992 FY 1992
------------------ -------- --------- -------- ---------
North America 163 $10,460,1 267 $11,895,2
40 74
Central America 11 344,645 18 491,229
South America 99 10,194,25 185 9,620,764
6
Caribbean 16 394,262 51 1,092,771
Europe/Russia 27 1,828,738 56 1,537,783
Middle East 45 1,698,771 70 1,910,750
Far East 107 3,229,151 112 3,856,227
Africa 153 5,369,641 81 2,662,549
Unknown 41 20,860,19 22 9,371,172
3
============================================================
Totals 662 $54,379,7 862 $42,438,5
97 19
------------------------------------------------------------
Source: U.S. Customs Service.
For fiscal years 1991 and 1992, smuggling attempts on commercial
airlines yielded the most seizures by dollar value. As discussed in
chapter 2, Customs officials believe that commercial air travel is a
favored means for smuggling currency because the travel time is
short, the individual stays close to the money, and almost any
destination is readily accessible. For this reason, Customs tends to
perform more outbound inspections at airports. Customs officials
were not sure whether the large volume of seizures on commercial
airlines was due to this being the most prevalent type of conveyance
or to this being the area where Customs devoted more resources.
Table 3.4 shows the seizures for fiscal years 1991 and 1992 by method
of conveyance.
Table 3.4
Outbound Currency Seizures by Method of
Conveyance, Fiscal Years 1991 and 1992
FY 1991 FY 1992
percent percent
FY 1991 of FY 1992 of
dollar dollar dollar dollar
Type of transport value value value value
------------------ --------- -------- --------- --------
Commercial $34,352,8 63.17 $30,109,4 70.95
aircraft 35 31
Land vehicles 3,895,267 7.16 3,822,489 9.01
Commercial vessels - - 7,372,766 17.37
Pedestrians 48,824 0.09 371,699 0.88
Private vessels - - 20,000 0.05
Bicycle - - 18,871 0.04
Unknown 7,765,299 14.28 - -
Other 8,317,572 15.30 723,263 1.70
============================================================
Totals $ 100.00 $42,438,5 100.00
54,379,79 19
7
------------------------------------------------------------
Source: GAO analysis of Customs data.
Customs officials believe that the impact of Operation Buckstop is
much greater than the actual seizures appear to show. They said that
the program is also resulting in additional compliance with CMIR
requirements. They pointed out that in performing the inspections,
the inspectors often require travelers to complete a CMIR on the spot
rather than seizing the currency. For example, Chicago-O'Hare made
59 seizures of outbound currency totaling $1,759,328 during calendar
year 1992. Customs officials told us that during this same period,
they caused an additional $4,747,288 to be reported on CMIRs.
PORT FACILITIES MAKE OUTBOUND
INSPECTIONS DIFFICULT
---------------------------------------------------------- Chapter 3:3
The physical location of outbound inspections can pose a problem for
Operation Buckstop that has no parallel for inbound inspections.
When performing inbound inspections, Customs can keep individuals or
goods from being released until Customs officials have conducted the
necessary examinations. At each port, Customs maintains a facility
for these purposes.
Outbound inspections are much harder to perform. One reason is that
individuals and businesses traditionally have been allowed to leave
the country without having to be inspected and are resistant to the
delays and inconvenience involved in outbound inspections. This
difference is obvious in the aerial photograph of the border crossing
at San Ysidro, as shown in Figure 3.3. Note the backup on the
inbound (Mexican) side compared to the no traffic backup on the
outbound (U.S.) side. During Operation Buckstop inspections, the
same type of backup would take place on the outbound side.
While conditions at seaports and airports are somewhat different, the
principle is the same. Outbound searches add to the departure time.
Customs officials said that even if they had sufficient resources to
perform the same level of outbound searches they perform for inbound
traffic, the resistance from industry and international passengers
would be another factor that would have to be considered.
Figure 3.3: Aerial Photograph
of the U.S.-Mexican Border
Crossing at San Ysidro,
California (Outbound Lanes at
Top, Inbound Lanes Below)
(See figure in printed
edition.)
Source: U.S. Customs Service.
(See figure in printed
edition.)
OUTGOING U.S. MAIL IS
PRECLUDED FROM OPERATION
BUCKSTOP INSPECTIONS
---------------------------------------------------------- Chapter 3:4
As we noted in chapter 2, federal law enforcement agencies agree that
a significant amount of currency is being sent out of the country
through the U.S. mail and commercial carriers without being
reported. Customs performs warrantless searches of parcels being
sent out of the country by commercial carriers, but the legal
authority of Customs to inspect outgoing U.S. mail without a search
warrant is a matter of dispute between Customs and the Postal
Service.\4 Consequently, Customs inspects outbound mail only after it
has determined through an investigation that there is probable cause
for obtaining a search warrant.
As discussed in a previous report,\5 the Postal Service believes that
Customs does not have the statutory authority to inspect outgoing
mail without a search warrant. As a result, the Postal Service has
precluded Customs from initiating routine and random inspection
efforts such as Operation Buckstop for U.S. mail being sent out of
the country.
Without the ability to perform warrantless searches, Customs cannot
conduct outbound inspection programs such as Operation Buckstop when
the U.S mail is involved. Customs officials told us they believe
that if there were Operation Buckstop searches done on the U.S.
mail--even on the limited basis as done at other border
crossings--millions of dollars in unreported currency would be seized
as well as the country's borders made more secure against other types
of illegal exports.
Customs and the Postal Service are aware of this problem and have
been working toward a solution. In July 1992, the agencies began
drafting proposed amendments to the Bank Secrecy Act and Title 39
statutes governing postal operations under which Customs would
perform warrantless searches of outbound mail. They also began
working on an agreement to implement warrantless search procedures
should the amendments be enacted. However, as of November 1993,
Customs and the Postal Service had been unable to reach an agreement
on either the proposed amendments or the working arrangements.
--------------------
\4 The authority of Customs to perform certain warrantless searches
of mail coming into the country was upheld in a 1977 Supreme Court
decision (United States v. Ramsey, 431 U.S. 606 (1977).
\5 Export Controls: Use of the Mail to Illegally Export Sensitive
Technology (GAO/C-NSIAD-90-31, May 18, 1990).
CUSTOMS IS INCREASING THE
EMPHASIS GIVEN OUTBOUND
INSPECTIONS
---------------------------------------------------------- Chapter 3:5
The Customs Service is aware of the impact of currency smuggling on
efforts to combat money laundering and has implemented several
initiatives to emphasize the importance of outbound inspections to
interdict unreported currency. These efforts are also designed to
increase and improve management of outbound inspections on a
nationwide basis.
In its 1991 U.S. Customs National Financial Enforcement Strategy and
Implementation Plan, Customs cited as a key objective the need to
continue exploring and developing new and innovative outbound
operations in the private aircraft, cargo, passenger, land border,
and courier areas. This directive also instructed the district
directors to integrate outbound currency interdiction initiatives
into their district drug strategies.
In an effort to increase the overall effectiveness of outbound
currency searches through greater uniformity and coordination, a
Customs' survey team of headquarters and regional staff visited seven
major airport locations participating in the Operation Buckstop
initiative during 1991. The survey team's objective was to determine
whether the success experienced in outbound currency interdiction at
Miami and New York-JFK was attributable to a greater incidence of
smuggling or to personnel, procedures, or strategies in place at
these locations.
In its report, the survey team acknowledged that each location was
facing increased pressures on inbound processing as the number of
flights and arriving passengers and cargo workload continued to rise.
This workload, coupled with the ever-present narcotics threat, had
caused Customs headquarters to direct local ports to allocate
resources accordingly. Fewer and less-intensive Operation Buckstop
operations resulted. The survey team made the following conclusions
and recommendations in order to increase the overall effectiveness of
Operation Buckstop:
The outbound currency threat is "as great as ever" and Customs is
not addressing the problem on a continuing basis. The ports
should establish dedicated outbound teams that would concentrate
on Operation Buckstop.
Resources are available that are not being fully used in support of
Operation Buckstop. Ports need to increase their use of such
resources as the National Guard, state and local law enforcement
authorities, and joint task forces. Also, ports should conduct
special outbound initiatives using asset forfeiture funds when
appropriate.
The use of specialized equipment such as X-ray vans for outbound
currency interdiction under Operation Buckstop has received
lower priority than for incoming cargo. Customs needs to
purchase more of this equipment.
There are no national directives on training, procedures,
intensity, or regularity of inspections required under Operation
Buckstop. Program standards, such as a national directive, are
needed to resolve inconsistencies and reemphasize the importance
of Operation Buckstop.
As a result of the airport survey report, Customs is developing a
national directive and establishing a National Task Force to develop
a handbook to ensure that minimum uniform standards are adhered to
during Buckstop operations. The drafts of these documents emphasize
the factors management feels are crucial for a successful outbound
program, including effective targeting and thorough port threat
assessments and good working relationships with Customs' Office of
Enforcement. Customs districts were informed of these plans in May
1992, but, as of November 1993, the directive and handbook had not
yet been issued in final form.
On March 1, 1993, Customs initiated a joint operation involving the
Service's Office of Inspection and Control and Office of Enforcement.
"Operation Outlook" is a sustained outbound enforcement operation
that emphasizes currency interdiction. Its purpose is to assess the
threat of outbound contraband, including unreported currency, on a
district-by-district basis and determine the resources required to
address the threat. Under Operation Outlook, Customs has taken
several steps designed to enhance its ability to combat currency
smuggling. These include the following:
Several dogs have been specially trained to detect concealed U.S.
currency and are on duty at several ports on a test basis.
These dogs have also been used to assist other ports in special
outbound enforcement efforts.
Certain conveyances, such as commercial parcel shipments, have been
targeted and certain areas of the borders have been "blitzed"
with additional staff and equipment resources temporarily
assigned.
Several efforts have begun to explore the feasibility of increasing
the use of intelligence sources, both in Customs and other
agencies, to better target specific cargo shipments and carriers
for outbound inspections.
On the basis of the results of the first 6 months of Operation
Outlook, Customs is optimistic about the operation. A total of 599
outbound currency seizures were made from March through August of
1993, a substantial increase from the 499 seizures made during the
same time period in 1992. The 599 seizures represented $26.6 million
in currency. In the 5-month period prior to Operation Outlook,
October 1992 through February 1993, 314 seizures totaling $12.6
million had been made.
The Customs Service has also increased the significance of currency
smuggling in its strategic plan. The Customs 5-year plan, released
in September 1993, identified four goals that must be addressed in
order for the Service to achieve its mission: Trade, narcotics,
money laundering, and outbound enforcement. The interdiction of
unreported currency is specifically highlighted under both the money
laundering and outbound enforcement goals.
CONCLUSIONS
---------------------------------------------------------- Chapter 3:6
Certain criminal activities, such as illegal drug sales, produce a
tremendous amount of currency that would be regarded as suspicious
unless it is disguised as legitimate. Consequently, U.S. efforts to
combat money laundering rely heavily upon the reporting of
transactions involving large amounts of cash. To avoid these
requirements, individuals have resorted to smuggling the currency out
of the country to spend or deposit it.
The Customs Service is responding to the growing threat posed by
currency smuggling by increasing national oversight of and emphasis
on its outbound inspection programs. In general, however, any
increase in outbound inspections reduces the level of effort given
inbound inspections. Determining the appropriate balance between
inbound and outbound interdiction efforts is an extremely difficult
task. Moreover, the solution is unlikely to remain constant and will
require periodic adjustments to reflect changing circumstances. The
Customs Service has demonstrated that it is aware of the overall
problem and the constraints it must deal with to address it.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 3:7
We provided a draft of this report to the Customs Service to review
and asked for oral comments. On January 14, 1994, we met with the
Assistant Commissioner, Inspection and Control, and his staff, who
told us that they agreed with the data and information in the report.
They also said that the report was an objective and balanced
presentation of the problems Customs faced in combatting currency
smuggling and accurately described the agency's plans to increase
these efforts in the future. They offered several editorial
suggestions to clarify certain information, and we made these changes
where appropriate.
DISTRICTS AND PORTS VISITED BY GAO
=========================================================== Appendix I
Regions Districts Ports Type
------------ -------------- ------------------------ ----
Pacific Seattle, WA Seattle/Tacoma Air
International
Blaine Land
Seattle Harbor Sea
Los Angeles, Los Angeles Air
CA International
Los Angeles Seaport Sea
Long Beach Sea
San Diego, CA Brownfield Air
San Diego International Air
San Diego Sea
San Ysidro Land
Otay Mesa Land
North Chicago, IL O'Hare International Air
Central
Detroit, MI Detroit Metropolitan Air
Canadian Tunnel Land
Ambassador Bridge Land
Northeast St. Albans, VT St. Albans Rail
Burlington Air
Derby Line Land
Norton Land
Highgate Springs Land
Alburg Land
New York Newark, NJ Newark International Air
New York, NY JFK International Air
Southeast Washington, DC Dulles International Air
Miami, FL Miami International Air
Miami Seaport Sea
Southwest Nogales, AZ Nogales Land
Tucson International Air
============================================================
Totals 6 11 28
------------------------------------------------------------
CUSTOMS OUTBOUND CURRENCY AND
MONETARY INSTRUMENT SEIZURES BY
REPORTING LOCATION FISCAL YEAR
1992
========================================================== Appendix II
Number of Domestic
reporting District Reporting dollar Total by
locations name location value district
--------- ------------ ------------ ---------- ---------
01 JFK Airport, JFK $14,516,34 $14,516,3
NY 3 43
02 Newark, NJ Newark 9,062,944 9,062,944
03 Los Angeles, LAX 4,903,782 4,903,782
CA Internationa
l Airport
04 Miami, FL Miami 385,748 2,153,462
05 Fort Pierce 45,595
Miami
06 Internationa 1,722,119
l Airport
07 San Diego, San Diego 88,430 1,898,889
08 CA Calexico 283,433
09 San Ysidro 604,272
10 Otay Mesa 922,754
11 Chicago, IL Chicago 1,757,477 1,757,477
12 Laredo, TX Brownsville 714,842 1,355,631
13 Laredo 209,550
14 Hidalgo 340,221
15 Rio Grande 79,900
16 City 11,118
Roma
17 Houston - Houston 1,293,033 1,293,033
Galveston, Internationa
TX l Airport
18 Nogales, AZ Naco 51,600 933,456
19 Nogales 535,983
20 San Luis 20,000
21 Tucson 325,873
22 Detroit, MI Detroit 844,705 896,272
23 Sault St. 51,567
Marie
24 Seattle, WA Sea-Tac 538,481 538,481
Internationa
l Airport
25 Honolulu, HI Honolulu 52,000 468,523
Honolulu
26 Internationa 416,523
l Airport
27 San San 390,885 390,885
Francisco, Francisco
CA
28 Washington, Washington 314,687 314,687
DC
29 Ogdensburg, Massena 141,908 298,513
30 NY Alexandria 12,220
31 Bay 144,385
Champlain/
Rouses Pt.
32 Boston, MA Logan 281,337 281,337
Airport
33 San Juan, PR Mayaguez 19,432 257,150
San Juan
Internationa
34 l 237,718
Airport
35 Portland, OR Portland 197,140 197,140
36 Dallas-Fort Dallas-Ft. 77,269 188,788
37 Worth, TX Worth 111,519
San Antonio
38 Tampa, FL Port 165,000 165,000
Canaveral
39 Baltimore, Baltimore, 133,676 133,676
MD MD
40 St. Albans, Highgate 116,000 116,000
VT Springs/
Alburg
41 Buffalo- Buffalo- 84,824 84,824
Niagara Niagara
Falls, NY Falls, NY
42 Philadelphia Philadelphia 34,141 48,269
43 , PA Pittsburgh 14,128
44 El Paso, TX El Paso 47,694 47,694
45 New York, NY New York 26,915 26,915
Seaport
46 Anchorage, Anchorage 24,977 24,977
AK
47 Minneapolis Minneapolis 24,451 24,451
-St. Paul, -St. Paul
MN
48 Great Falls, Salt Lake 12,752 12,752
MT City, UT
49 Pembina, ND Dunseith 12,592 12,592
50 Savannah, GA Atlanta, GA 12,475 12,475
51 Portland, ME Bangor $11,801 11,801
52 Cleveland, Louisville, 10,300 10,300
OH KY
============================================================
Total $42,438,5
19
------------------------------------------------------------
Source: U.S. Customs Service.
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III
GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C.
------------------------------------------------------- Appendix III:1
Edward H. Stephenson, Assistant Director
Michael L. Eid, Assignment Manager
OFFICE OF GENERAL COUNSEL,
WASHINGTON, D.C.
------------------------------------------------------- Appendix III:2
Geoffrey R. Hamilton, Attorney/Advisor
ATLANTA REGIONAL OFFICE
------------------------------------------------------- Appendix III:3
Frankie Fulton, Regional Management Representative
Clarence Tull, Evaluator-in-Charge
Cheri White, Senior Evaluator
Veronica Mayhand, Site Senior
Bonnie Wrenn, Evaluator